Watch on stimulus for food industry impact

March 31, 2009
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by Morton Sosland

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While issues directly affecting national and global food manufacturers have been given little or no attention in responses around the world to the financial and economic meltdown, it would be a serious mistake not to keep a close eye on what is being done. Efforts to bolster consumer incomes and spending, of course, have a direct impact on demand for food and thus for many basic ingredients. Personal spending shifts already have been reflected in demand changes in many countries. Even steps to reduce or halt home foreclosures and bankruptcies, which may appear totally removed from food and agriculture, cannot help but have an influence on consumers. If over-leveraging and excessive reliance on non-bank credit are faulted for much of the current malaise, initiatives taken by governments to spur resumption of bank lending should be counted as among the most important undertakings affecting how food manufacturing emerges from this downturn. After all credit availability is the very lifeblood of the food business.

Considering how remedies aimed at helping agriculture recover captured central attention in steps taken in response to the Great Depression of the 1930s, the absence of such a focus in the current episode may prompt sighs of relief. The food manufacturing industry required many years to recover even partially from some of the governmental support programs tracing their origins to the 1930s. That agricultural supports and similar legislation are not the centerpiece of present efforts, though, does not diminish the need to be alert to the consequences of whatever actions are taken, regardless of how inconsequential they may appear.

Hardly anything justifies this attention more powerfully than efforts by the U.S. Congress to attach "Buy American" provisions to the economic stimulus act passed in February. First the House and then the Senate provided that only American-made steel and other products could be used in the infrastructure projects that would be financed by the billions of dollars authorized to be spent to boost the economy. If allowed to stand, this provision very likely would have triggered a response by America’s trading partners that would have had a hugely negative effect on agriculture. The net result might have been more damaging to the food business than many other sectors. A "beggar-thy-neighbor" policy, which is as good a way as any to define what this means, would be catastrophic for food and agriculture. This warning does include domestic food manufacturers whose broad choice of ingredients is greatly strengthened by America’s participation in global markets.

As horrifying as it would have been to have these "Buy American" provisions stand as first proposed, and thankfully the impact was sharply reduced, one positive to emerge involves the new president, Barack Obama. At the height of his campaigning for the presidency, Mr. Obama voiced trade-related views that made close observers wince that he might be questioning the benefits of multilateral trade. He seemed to want to give preference to labor and environmental issues. Yet, in the White House, he happily spoke against the congressional origin mandates, and in his first foreign trip, to Canada, he warned about allowing "any signals of protectionism," stressing his preference for open trade between the two countries. This was viewed as a particularly important statement in support of the North American Free Trade Agreement, which he had seemed to question during the campaign for the presidency. This agreement, known as NAFTA, has with numerous fits ands starts facilitated trade within the North American market to the benefit of the United States, Canada and Mexico.

Many of the stimulus, trade and financial undertakings being adopted by countries around the world are rightly seen as "tightrope walking" between economic and political matters. This inherent conflict not just applies domestically but internationally. No industry has more at stake in how these efforts unfold and ultimately succeed or fail than the global food manufacturing industry.

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